Obama holds ground on tax demand

President Barack Obama speaks to reporters in the Brady Press Briefing Room at the White House in Washington late on Friday afternoon.
Photo: AP

President Barack Obama says talks with Congressional leaders on Friday were “constructive" but if no agreement is reached in the Senate he will be push for his proposal to be voted on.

Speaking after the end of about an hour long meeting with Congressional leaders at the White House, Obama told reporters that he was “modestly optimistic" an agreement would be reached. At a “bare minimum", he wants Congress to agree to not increase taxes on America’s middle class, he said.

The president’s offer is on renewing existing tax cuts for American households with income of up to $US250,000 a year, Bloomberg News reported earlier. That’s the same offer he made on December 21.

Additionally, Obama is believed to have asked Congressional leaders what changes they will support, Bloomberg said, adding that the president is seeking a straight ‘up or down vote’ on his tax cut proposal if no counterproposal is made.

US stocks have closed lower for a fifth straight day on Friday, dropping 1 per cent and marking the S&P 500’s longest losing streak in three months as the federal government edged closer to the “fiscal cliff" with no solution in sight.

Some in the market were resigned to Washington going beyond the New Year’s Day deadline, as long as a serious agreement on deficit reduction comes out of the talks in early January.

“Regardless of whether the government resolves the issues now, any deal can easily be retroactive. We’re not as concerned with January 1 as the market seems to be," said Richard Weiss, a Mountain View, California-based senior money manager at American Century Investments.

VOLATILITY RISES ON WALL STREET

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US stocks fell for a fifth straight day on Friday, dropping 1 per cent and marking the S&P 500’s longest losing streak in three months as the federal government edged closer to the “fiscal cliff" with no solution in sight.

“I was stunned Obama didn’t have another plan, and that’s absolutely why we sold off," said Mike Shea, managing partner at Direct Access Partners LLC in New York. “He’s going to force the House to come to him with something different. I think that’s a surprise. The entire market is disappointed in a lack of leadership in Washington."

In a sign of investor anxiety, the CBOE Volatility Index , known as the VIX, jumped 16.69 per cent to 22.72, closing at its highest level since June. Wall Street’s favourite fear barometer has risen for five straight weeks, surging more than 40 per cent over that time.

The Dow Jones industrial average dropped 158.20 points, or 1.21 per cent, to 12,938.11 at the close. The Standard & Poor’s 500 Index lost 15.67 points, or 1.11 per cent, to 1402.43. The Nasdaq Composite Index fell 25.59 points, or 0.86 per cent, to end at 2960.31.

For the week, the Dow fell 1.9 per cent. The S&P 500 also lost 1.9 per cent for the week, marking its worst weekly performance since mid-November. The Nasdaq finished the week down 2 per cent. In contrast, the VIX jumped 22 per cent for the week.

Pessimism continued after the market closed, with stock futures indicating even steeper losses. S&P 500 futures dropped 26.7 points, or 1.9 per cent, eclipsing the decline seen in the regular session.

All 10 S&P 500 sectors fell during Friday’s regular trading, with most posting declines of 1 per cent, but energy and material shares were among the weakest of the day, with both groups closely tied to the pace of growth.

REPUBLICANS EXPECTED NEW PROPOSAL

Republican Senate Minority Leader Mitch McConnell of Kentucky, who said Thursday he had held conversations with Obama, had expected a new proposal from the president that he would consider.

However, the White House spent much of Thursday stifling expectations for any new offer from Obama, beyond the limited fallback plan he outlined in vague terms on December 21, which would protect what he described as “middle class Americans" from the tax hikes, extend unemployment insurance and lay the “groundwork for further work" on deficit reduction and tax reform.

The major sticking point is Republican opposition to tax hikes on anyone, particularly in the absence of heavy cuts in spending for so-called entitlement programs such as Medicare and Medicaid, the government-run health programs for senior citizens and the poor.

“The wealthy have got to kick in," said Democratic senator Debbie Stabenow of Michigan Friday morning on CNN. “The tough part is in the House, where they have taken this very extreme position of protecting the wealthy at all costs."

“It’s feeling very much to me like an optical meeting than a substantive meeting," said Republican Senator Bob Corker of Tennessee, noting that it was not a sign of urgency to set a meeting for mid-afternoon with a deadline just days away.

ECONOMY’S MOMENTUM AT RISK

Contracts for US home resales hit a 2-1/2 year high in November and factory activity in the Midwest expanded this month, suggesting some strength in the economy despite the threat of tighter fiscal policy.

The National Association of Realtors said on Friday its Pending Home Sales Index, based on contracts signed last month, increased 1.7 per cent to 106.4 - the highest level since April 2010 when the home-buyer tax credit expired.

Signed contracts, which become sales after a month or two, increased 5.0 per cent in October. November marked the third straight month of gains.

A separate report showed the Institute for Supply Management-Chicago business barometer rose to 51.6 in December from 50.4 in November. A reading above 50 indicates expansion in the regional economy and the second straight month of growth was driven by a rebound in orders.

The reports suggested some of the growth momentum from the third quarter carried into the final three months of 2012, even as businesses and households braced for sharp cuts in government spending and higher taxes in the new year.